Trichet: ECB has duty to 331m people

THE head of the European Central Bank (ECB) says it has a responsibility to 331 million people in the eurozone — not just Ireland.

Jean-Claude Trichet was asked about the effect of an interest rate increase on Ireland and other struggling eurozone countries.

He said Ireland benefited as much as any other country from low inflation.

The ECB voted to increase the base rate of interest from 1.25% to 1.5% yesterday — the highest rate since March 2009. The aim is to keep inflation low.

Monthly repayments will increase by around €15 per €100,000 borrowed. On a €300,000 mortgage, repayments will jump by around €45 per month or €540 per year.

Mr Trichet said that the latest figures from Ireland showed its “results are going in the right direction”.

A decision on how to continue providing liquidity to banks in Greece, Ireland and Portugal is a “work in progress”, he said.

“Our monetary policy stance remains accommodative,” Mr Trichet said.

“It is essential recent price developments do not give rise to broad-based inflation pressures over the medium-term.”

Mr Trichet, who retires at the end of October, said the ECB would “monitor very closely all developments with risks to price stability”, omitting the term “vigilance,” which he has used in the past to signal an imminent rate increase.

Director of the Irish Mortgage Corporation, Frank Conway said it is less clear if banks will pass along the latest rate increase to their standard variable rate customers.

“In April, when the ECB last increased the base rate of interest, some banks in receipt of state funding held back from passing along the ECB rate rise to their standard variable rate customers. However, in recent weeks, some lenders preempted the latest announcement by increasing standard variable rates by a quarter of a percent,” Mr Conway said.

“The ECB has given strong indications that it plans to continue its inflation-control drive.

“Irish mortgage holders should prepare for higher borrowing costs in the months ahead, with further rate increases expected in October 2011 and again in January 2012,” he said.

“Mortgage holders need to plan for higher monthly repayments,” Mr Conway added.

However, Julian Callow, chief European economist at Barclays Capital in London said: “This may in fact be Trichet’s last interest-rate increase. It’s not just Greece, the sands are shifting in the global economy under the ECB’s feet.”